THE CHART TOLD YOU TO DO SO!!!

As Chinese proverbs said, a picture worth more than a thousand words, the chart of Karex does not look good. In fact it look pretty bad. It move below the Bollinger band, break below SMA 200 and EMA 200, MACD turn negative. It all point to one direction, more downside is coming. So, SELL BEFORE TOO LATE.

Bad Result of Hartalega

Hartalega just announce their 2016Q1 result a few days back and it totally does not look good. Their EPS had drop about 15% and of course, the share price tank as well. According to the management of Hartalega, even though the revenue had increase but due to the weakening of USD, it had eat up their profit.

The price movement of Hartalega after the announcement of QR.

Since Karex was almost in the same industry as Hartalega, we would almost certain that the Quarterly result for Karex will be bad as well. Here are some simple calculation. The EPS of Karex for last quarter was 3.39 sen. Let’s assume that their EPS only drop 10% which will bring their EPS to around 3sen. By annualizing it, the full year PE will be 12sen. If we give a generous 18 times PE to Karex then it will only worth around RM2.16 which is far below current price.

The Management Told You To Sell

Below are the excerpt of management performance review from their last quarterly report,

The good result in their previous quarter was mainly due to lower raw material price, one off gain from a bargain purchase and also more favourable exchange rate. All of these advantage will not appear again in this quarter, the raw material price had gone up and our MYR will be strengthen. So, we can expect a worse their quarter result compare to second quarter.

Unjustifiable High P/E Ratio

Karex had maintain a high P/E Ratio since the first day of their listing due to huge expectation on their performance growth. If things back to normal in this quarter, Karex won’t be able to sustain their high P/E Ratio. Hence, a normal P/E ratio of within 5 to 8 will be assigned to Karex. Their TTM EPS was 11.78 and we assume they will for 3^rd and 4^th Quarter is 3sen each. The total EPS will only be 17.78sen, a P/E ratio of 8 will only price Karex at RM1.42.

Unusual Price and Volume Movement Post Bonus Issue

Below show the share price movement of Karex after their bonus issue. As we can see, there are not much volume and price movement around the first 10 days of post bonus issue. However, something odd suddenly happen in this week. There are suddenly a total more than 6million of transaction happen in the last 3 day, which is a 12times of volume on 3/5/2016 and the price drop for around 6%. This might indicate that the insider had got their hands on the latest quarterly report and sell before it release. So, sell before it’s too late.

In conclusion, no matter the technical or the fundamental or educated guess had shown us that Karex was indeed overvalue at current stage and their result might be in very bad shape based on recent price movement. I think most of the investor should SELL BEFORE IT IS TOO LATE! For those who are wishing to buy, I hereby advice don’t try to catch a falling knife. It is better to be safe than sorry.

Disclaimer: I wrote this article myself, and it expresses my own opinions. The author does not guarantee the performance of any investments and potential investors should always do their own due diligence before making any investment decisions. Although the author believes that the information presented here is correct to the best of his knowledge, no warranties are made and potential investors should always conduct their own independent research before making any investment decisions. Investing carries risk of loss and is not suitable for all individuals.